Terry Smith banks gain with Apple sale

The Fundsmith Equity fund now has just 12.6% in the technology sector, writes Sam Benstead.

4th December 2024 10:13

Terry Smith has sold his position in Apple, two years after initially building a position in his £23 billion Fundsmith Equity fund.

Apple shares traded at around $150 in November 2022 – they cost $240 today, 60% more, showing that Smith has banked a tidy profit.

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This is another major US tech share Smith has bought and then sold in just a couple of years. The others are Amazon, which he sold in July 2023 after holding for a little under two years, and Adobe, sold in spring 2023 after holding for less than a year.

Smith says that his investment philosophy is to “buy good companies” and then “do nothing”.

Fundsmith Equity now has just 12.6% in the Information Technology sector – this includes top position Facebook-owner Meta Platforms, as well as Microsoft, which he’s held since the fund’s launch in 2010.

His low allocation to technology shares makes his fund an outlier among global equity peers. This may prove to be a masterstroke if there is a turndown in the tech sector, but so long as tech stocks keep rising, driven higher by artificial intelligence (AI) developments, his fund is likely to underperform the MSCI World benchmark.

In the summer, Smith wrote that the Apple position was small and he was waiting “patiently for the stock price to reflect the company’s current trading”.

Given the 29% return for Apple shares this year, it appears that Smith now considers the company fairly priced. The shares trade on a price-to-earnings ratio of 39 times, according to Morningstar, which is ahead of their five-year average of 28 times, and 26 times for the S&P 500.

Smith has been outspoken about expensive valuations in the so-called Magnificent Seven stocks.

One company he’s never owned is Nvidia, which is now competing with Apple for the title of world’s most valuable company.

Smith told ii’s On The Money podcast that he had concerns about how Nvidia could cope in an economic downturn, and said that it has had to reinvent its business model a number of times, and it’s not certain whether it could do the same again in the future. He’s also concerned about volatility.

He said: “Bear in mind the following. On those two changes in the direction of what they were doing in the past, the stock went down 80% on both occasions. You’ve got to have a pretty strong stomach for that kind of stuff. And it does worry us that it’s not got the predictability that we seek in companies. One of the most important things we’re looking for is something that’s relatively predictable, and that doesn’t sound like it’s particularly predictable. Presumably at one time they may do that and it may go down 80% and it might not succeed. So that’s one thing.”

Fundsmith Equity has returned 11% this year compared with 23% for the MSCI World index.

It is up 57% over the past five years compared with 85% for the MSCI World. Over 10 years, it is ahead of its benchmark, returning 261% versus 224%.

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